Just want to run this one past you. I've been studying stock valuation and analysis vigorously for about a week or two and have started to apply some of the things I've learned to come up with my first stock analysis.
I've picked the company Mount Gibson Iron Ltd. (MGX), because they were highlighted as a potentially interesting buy in an article I read online. I just wanted to see whether my own analysis would correspond with this assessment or whether I would swing the other way. I would love your honest opinion on this!
Mount Gibson is an iron ore miner that has existed since 1996 and went public in 2002. Obviously iron ore is a sector with its up and downs, depending largely on overseas (mainly Chinese) demand and demand driven by the construction sector. With the Chinese economy in a bit of a slowdown and the mining boom past its (first) peak, trading conditions for MGX have not been easy; year on year profits are a bit down. Having said that, iron ore productions was up significantly last quarter, so things are looking up. In the long term, I expect the Chinese economy to pick up pace at some time and it's only a matter of time before iron ore demands surge again.
On top of all this, Mount Gibson is sitting on an absolute motherload of cash (420 million) and has nearly completely paid off its debt. The obvious question is what to do with this cash. Dividends have been fairly conservative (~3.7% given today's share price), so I expect there's some big plans in the pipeline with the company hoarding its cash.
Fundamentals based on FY2013 report
Total assets: $1555m
Total liabilities: $373m
Outstanding shares: 1090m
If you do some simple math you can easily derive from these numbers that the company currently trades at a share price below its book value of $1.08 per share.
Total debt: $19m
Debt to current assets: 0.03
Cash reserves: $420m
Debt is negligible and easily covered off by cash reserves.
Net profit: 157m
EPS = 0.14
P/E ratio at current price ($1.01): 7
A P/E ratio of 7 is very low and given the healthy balance of this company, almost a bargain in my opinion.
My conclusion: buy and hold for the long term.
Technically it looks like the stock has bottomed out. The EMAs are all pointing up up up.
There's no reason why this stock can't at least double in value over time and move back to its 2011 high of over $2. Obviously, a lot will depend on how the Asian economy develops, as well as how management spends it cash reserves. But it seems like a fairly safe investment, given that the company trades below its book value.